1/7/08 A Rare Early Morning Prediction

Of course I will update this blog when the market opens and MBS's begin trading, but we have such a sure thing today that I'm willing to take a stand on it before the market opens.

When the market has several days of extreme weakness, that is one thing.  When that weakness ends with the market at or near the very bottom of its recent trading range, that is even more rare.  When that occurs on a Friday it is rarer still.  When the following Monday has no relevant economic news set to release, now we are getting into the "once or twice a quarter" occurrence range.

 Today is that Monday, and one of the few times I will post a blog before MBS's begin to trade.  Today will almost certainly bring a "technical rebound."  This means that there is "floor" for the Dow at around 12,800, for the 10 year treasury around 4.9, and for Mortgage rates around 5.5%.  It is highly likely, considering all these metrics hit that floor on Friday, and that there is no economic data news released today, that the markets will rebound based on that technical floor.

So rates will likely be back up to 5.5-5.625% PAR NOTE rate this morning, with the Dow likely to move upward, and possibly punch right through the 13,000 mark fairly quickly simply because traders will the Friday's sell-off has created a good buying opportunity just as they did the last time the Dow dropped this low.

So I take the rare stand and actually predict something, as opposed to providing analysis.  I think the Dow will move up today.  The only question is what kind of money will it pull out of MBS's?  Will there be any surprise announcements that cause concern about inflation?  I'll update the blog later, but until then, keep a sharp eye on the Dow for dramatic movement.  If you have a lender release an early rate sheet and the Dow is still moving up, you should heavily consider locking short term. 

We need to watch the recession conversation this week and see to what extent it is tempered by inflation concerns.  This will give us a better indication of mid to long term lock decisions.